Japan government: $43 billion credit to main banks for M & A abroad

06Oct

Japan government: $43 billion credit to main banks for M & A abroad

Joachim de Villiers and Lee Jay Walker

Modern Tokyo Times

The government of Japan decided on providing a $100 billion dollars lifeline to help Japanese companies during this difficult time. This was agreed in August and the main area is to fund exporters and help with foreign purchases in order to counteract the strong yen.

Therefore, the three main banks have been allocated a $43 billion dollar credit line in order to help Japanese companies to expand overseas. The high yen is putting a huge burden on exporters and this economic incentive is designed to sure up the business community, which is feeling the consequences of an unbalanced currency market.

Mitsubishi UFJ Financial Group Inc. is being offered a $15 billion dollars credit line and Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. are both being offered $14 billion dollars. The money is being channeled via the Japan Bank for International Cooperation (JBIC) and the move is seen to be positive.

The weakness of the dollar is creating major problems and in the last 6 months alone the yen rose 11%. At the same time you have mass instability in the Eurozone and tensions are rising between America and China because of China’s manipulation of its currency. Therefore, the yen is seen to be a safe haven given the current economic instability which is infringing on all major economies.

Yoshihiko Noda, the Prime Minister of Japan, and senior figures in the Democratic Party of Japan (DPJ), are alarmed by the currency market because the high yen is not based on Japan’s economic reality. Therefore, a huge burden is being put on Japan at a time when funding is needed domestically because of the devastation caused by the March 11 tsunami and the ongoing consequences of Fukushima.

The logic behind the initiative is to help banks obtain dollars and then to utilize this credit line by offering loans to companies which are focused on obtaining acquisitions abroad. This initiative will provide much needed capital and provide a cushion to the three megabanks and companies which seek to expand internationally.

Yoshinobu Yamada, an analyst for Deutsche Bank AG and who is based in Tokyo, commented that “This is a preparatory measure for any future event that may make it difficult for Japanese banks to procure the dollars in the market.” He continued by stating that “…Japan’s government needs to swiftly reconstruct the earthquake damaged nation and push domestic economic growth.”

Recent overseas acquisitions have totaled $56.7 billion dollars and this is the highest for three years and it is clear that despite all the mayhem that Japan seeks to counteract all these negatives. Also, you have genuine fears that the yen will force some Japanese companies to relocate production abroad and the same applies to research and development. Therefore, it is imperative that the government steps in and supports companies in Japan to weather the storm and to help in foreign acquisitions.